U.S. will avoid recession in 2008, White House says

Formal forecast sees steady growth, tick up in unemployment rate

WASHINGTON (MarketWatch) - The U.S. economy will be able to walk across the minefield of the housing downturn, possible credit crunch and rising oil prices without blowing up, according to the official White House economic forecast released Thursday.

"While difficulties in housing and credit markets and the effects of high energy prices will extract a penalty from growth, the U.S. economy has many strengths and I expect the expansion to continue," said Treasury Secretary Henry Paulson in a statement accompanying the release of the forecast.

The White House sees a slowdown, but projects growth will average 2.7% over the four quarters of next year. This is down from the previous forecast this summer of a 3.1% growth rate.

The forecast shows the unemployment rate will only tick up to 4.9% next year from its current level of 4.7%. But job growth should average a healthy 109,000 per month next year. This is down from this year's estimated average of 29,000 jobs created per month.

"We are entering a record fifth year of continuous job growth while the unemployment rate remains low and we believe these trends will continue," said White House chief economist Edward Lazear.

Inflation is not a worry, the White House said.

After spiking up this year due to food and energy prices, inflation is expected to moderate next year.

Economists generally dislike forecasting recessions because it is so difficult. But Wall Street analysts have been steadily raising the odds of a serious downturn since the financial market turmoil boiled over in the summer.

For instance, economists at Goldman Sachs recently hiked their odds of a recession in 2008 to 40-45%.

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